The Day Ahead: The Free-Money Reality Check

Here is why I'm reiterating my negative bias on stocks.

Good luck trying to be a hero on Caterpillar ( CAT): Is it really that dirt-cheap after the FedEx ( FDX) and Norfolk Southern ( NSC) warnings and the downtrodden Shanghai Composite Index? I will watch from afar as you calculate the present value of future cash flows in a spreadsheet. By the way, speaking of Norfolk Southern, I wonder how Buffett's Burlington Northern is doing if that former name is performing weakly -- and that makes me wonder whether Berkshire Hathaway ( BRK.A) could be a negative surprise earnings story.

Macro

I remain on the prowl for favorable patterns in macroeconomic releases, specifically in the areas of new orders and employment. In no way am I looking for perfection -- I'm merely seeking a move out of contraction zones and a decent month-on-month improvement. If this starts to occur with consistency, it would provide greater comfort on October data, given the Fed's involvement in markets. But the more data I digest, it would appear that -- well, let me stop right there. I don't want to freak you out this early in the week.

If I were to venture a guess, I'd say this week is very apt to feel identical to last week -- missing a spark as investors peak across the room and see a bunch of boogeyman approaching.

Monday Quickies

It's sort of silly to think the decline in oil prices gives the Fed scope to stay on the gas pedal longer. The Bernanke Fed is laser-locked on eradicating high unemployment just as inflation expectations have begun to climb. I have two side notes here. First, my view is that investors take for granted the extent to which inflation has been contained in recent memory -- using government data, not the food and oil bills. But the fact is that, regardless of any potential excess capacity in the job market, the Fed's balance-sheet party will eventually carry ramifications that will make owning gold a priority. My second note regards The Wall Street Journal's Weekend column about Harley Davidson's (HOG) sharpened manufacturing processes. This is a must-read, as it perfectly demonstrates the concept of "structural unemployment" that results from a recession.

Be aware that, in a market awash with cash and chasers eager to chase, last week the strongest performers were defensive sectors such as telecom and healthcare were. Hmm.

The Urban Outfitters (URBN) analyst day, on Sept. 27, is likely to support the bulls on the stock.

Lost in the positive write-ups on Darden's (DRI) earnings was this: In order to reignite traffic, the company had to lower menu-price increases at its restaurants intra-quarter.

At the time of publication, Sozzi had no positions in the stocks mentioned, although positions may change at any time.

Brian Sozzi is Chief Equities Analyst for NBG Productions. In this capacity, he is responsible for developing independent financial content and actionable stock recommendations (including ratings and price targets) for an institutional and retail investor base. In addition, Sozzi is the Editor in Chief of the "Decoding Wall St." investor education online platform.